Mesa accused of conspiring to oust Aloha from isle market

Hawaiian Airlines, claiming that Mesa Air Group never had the public interest in mind in entering the interisland market, said in federal Bankruptcy Court yesterday that it uncovered e-mails during legal discovery that showed the Phoenix-based carrier intended to put Aloha Airlines out of business.

Airing out grievances

Here are the developments of the Bankruptcy Court case yesterday between Hawaiian Airlines and Mesa Air Group:

» Bankruptcy Judge Robert Faris takes under advisement Hawaiian's motion for a preliminary injunction that would prevent go! from selling tickets for one year.

» Hawaiian discloses the content of e-mails by Mesa and a consultant that describe plans to put Aloha out of business.

» Hawaiian claims that Mesa intended to raise fares once Aloha was out of the way.

» Mesa says that Hawaiian has made a settlement offer, while Hawaiian says it intends to go to trial in April and seek damages that will be "enormous."

» Hawaiian says that Mesa tried to strike a deal with Aloha before beginning service on June 9; an industry source says that Mesa offered to invest $25 million in Aloha, but Aloha rejected the deal.

The accusation came on a day in which Hawaiian sought a preliminary injunction to prevent Mesa's new interisland carrier go! from selling tickets for one year. Bankruptcy Judge Robert Faris took the matter under advisement yesterday and said he would issue a written decision but did not specify a date.

Hawaiian Airlines attorney Bruce Bennett said the e-mails, previously submitted under seal, showed that Mesa consultant Mo Garfinkle and Mesa Chief Financial Officer Peter Murnane had discussed how Mesa could only succeed in the market if Aloha were put out of business.

Garfinkle, a former consultant for the parent company of Hawaiian Airlines, wrote in an e-mail to Murnane that the Hawaii project did not make any sense if Aloha was still in the picture, according to Bennett. Murnane's response was that rather than wait for Aloha to die, Mesa should establish a presence in Hawaii so no one else could move in, putting Mesa in position to give Aloha "the last push," Bennett said.

Bennett also said a document prepared by Mesa for potential go! investors showed that the carrier, which has built its reputation on its low fares, intended to raise prices once Aloha was out of the way.

Murnane, reached in Phoenix after the hearing, said that the e-mails and information were taken out of context.

"(Eliminating Aloha) was not part of our business plan," Murnane said. "We went to great pains to make sure our business model made sense with all three carriers in the market. We didn't want to go into Hawaii with the assumption that the only way this would work would be if we pushed Aloha over the edge."

As for raising prices, Murnane said the airline's projections were based on all three carriers competing in the market at current fare levels in 2006 and 2007. Murnane said, Mesa projected that in 2008 Hawaiian and Aloha would reduce interisland seat capacity, and go! would raise fares to below where they were before go!'s arrival.

Garfinkle, reached in China, declined to comment.

Aloha, which emerged from bankruptcy in February after nearly folding, issued a statement blasting Mesa.

"We are extremely disappointed with the disclosure in court that one of our colleagues in the airline industry appears to have been unethical in dealing with Hawaii's interisland market, and has been trying to put us out of business for its own gain," the company said in the statement. "In this industry, we expect that airlines will compete fairly on a level playing field, and it seems now that a new entrant is trying to unlevel that field.

"This is an affront to the more than 3,500 employees of Aloha Airlines, who have sacrificed so much to continue Aloha's legacy of providing high-quality air transportation for Hawaii's people."

Hawaiian is seeking the injunction because it claims Mesa used information from Hawaiian's proprietary data -- which Mesa had been allowed to see while it was a potential investor during Hawaiian's bankruptcy -- more than a year after the information was supposed to have been destroyed or returned.

Jonathan Ornstein, Mesa's chairman and chief executive, called Hawaiian's case against Mesa "hellacious" and said Hawaiian was shifting its legal strategy by focusing on Aloha.

"Hawaiian already has made an offer to us to settle (the case)," Ornstein said from Phoenix. "It's indicative of the weakness of their case. We remain confident in the strength of our case, and that's why we're unwilling to settle."

Ornstein declined to reveal the amount of the offer, and Bennett said he never discusses potential settlements and would not confirm there had been an offer.

However, Bennett said that the public interest in this case is to enforce the confidentiality agreement and protect the confidential information of Hawaiian Airlines.

"Irrespective of what happens with (Faris' decision), there is an absolutely solid damage case that is absolutely going to trial (in April), and the numbers are going to be enormous," Bennett said, noting that Hawaiian has lost customers, good will and market share.

Bennett also disclosed that Mesa and Aloha had held discussions about forming a partnership before go! began service on June 9. Mesa and Aloha declined to comment yesterday on the possible arrangement.

However, an industry source said that Mesa had offered to invest up to $25 million in Aloha after Mesa announced it was entering Hawaii but that Aloha had rejected the deal.